Number of leaked M&A deals falling

New research shows leaked deals take longer and are less likely to complete

First published Wednesday, 17th April, 2013

The number of merger and acquisition deals leaked around the world has fallen in the past two years, according to new a study conducted by Cass Business School's M&A Research Centre, with Intralinks Holdings Inc. and Remark.

The research study examined more than 4,000 transactions from 2004 through 2012 and interviewed 30 M&A practitioners in Europe and the U.S. It found that leaked deals take longer to execute and are significantly less likely to close. The research interviews also showed that most deal leaks are deliberate, with leaking by sellers responsible for driving higher bid premiums and leaking by bidders or third parties done to terminate bid discussions.

"In the vast majority of cases, neither the buyer nor the target want the deal to leak, with both parties usually benefitting from keeping a takeover secret until they are ready to announce the transaction," said Philip Whitchelo, vice president of product marketing at Intralinks. "It's clear from our research that the risks associated with leaks are rising. As a result there's evidence that sellers and their advisers are taking the issue of pre-announcement deal confidentiality much more seriously."

The research examined significant pre-announcement trading in the stock of a target company in the days leading up to the bid announcement, which is highly indicative of information leakage about the deal. Key findings from the research include:

• The number of deal leaks has been falling

There has been a drop in leaked deals from a peak of 11% during 2008-2009, to 7% during 2010-2012. In interviews, dealmakers suggested three main reasons for this fall: better tools for maintaining confidentiality, stricter regulatory enforcement and a slowdown in the deal making environment, where buyers aren't as likely to encourage rival bids and sellers are more cautious of complicating and delaying bid discussions.

• The risks from leaking deals have risen

The study found that on average leaked deals took over a week longer to close than those that did not leak. In addition, in the last two years, leaked deals were 9% less likely to actually complete than deals that were not leaked.

• Leaking is much more common in EMEA, particularly the UK, than in the U.S., though the gap is shrinking fast

A geographical breakdown from 2004-2012 showed that leaks were far higher in EMEA (14%) compared to the U.S. (7%). However, analysis shows that this gap is shrinking fast, with UK leaks shrinking from a high of 22% during 2004-2007 to 13% during 2010-2012. While comparisons across territories is difficult, in the study interviews, there was widespread agreement amongst M&A practitioners that this was largely due to much stronger regulatory enforcement in the UK since 2008.

• Leaked deals that close are more likely to be good deals for both seller and acquirer

Despite the risks involved, deals leak for a reason. The study found that leaked deals that complete result in significantly higher takeover premiums than non-leaked deals, with the average difference being 18 percentage points. For acquirers, leaked deals delivered higher long-term returns than non-leaked deals, with the average difference being 8 percentage points. The research interviews suggested that the reasons for both of these increases are the higher quality of targets involved in leaked deals.

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